How to License Your Invention
The adage that if you “build a better mousetrap, the world will beat a path to your door” has long been discredited. The reality is that it takes money and proactive effort to manufacture, market and distribute a new product, even if it is the proverbial better mousetrap.
Given the effort required, many inventors either don’t have the resources or are just not interested in taking their invention to market. They’re inventors, after all, not business tycoons. How then does an inventor profit from his or her patents? One way is through licensing.
Difference Between Licensing and Assignment
A license is a contract between the patent owner and another party in which the patent owner promises not to sue the other party for using the invention as long as the other party uses the invention according to the terms of the contract. The patent owner still owns the patent and is merely extending certain limited rights to the other party, usually in exchange for fees or royalties of one form or another.
An assignment, on the other hand, is a transfer of ownership interest in the patent. If an inventor assigns a patent to another party, the inventor has no further rights in the patent. A patent can be assigned in whole or in part, and it can be assigned conditionally or unconditionally. When assigned, the assignee becomes the new patent owner.
We point out the distinction between licensing and assignment because this article does not discuss issues relating to assigning patent rights.
Who Will License Your Invention?
Because an invention must be useful to be patented, it shouldn’t be difficult to identify who would find it useful.
For example, if your invention is a consumer product, then a manufacturer of similar consumer products may want your new product to add to their catalog and boost their sales.
If you’ve perfected some industrial product or process, then companies in that industry may want to take advantage of what you’ve created to lower their costs or gain a competitive advantage.
It may take research, but if you can uncover 40 to 50 companies who can financially benefit from your invention, you have a good chance of finding at least one who is interested in licensing it from you.
Making First Contact
Because the world is not going to “beat a path to your door,” you’re going to have to take the initial step in contacting your targets. Begin with a phone call to anyone in the target company with the objective of finding the right person to whom you can send information about your invention. You can explain briefly what you’ve patented and why it may be interesting to your target, but your main goal is to get a name and address of someone who wants to receive more information.
Selling Your Idea
Once you have someone interested, mail a professional letter along with printed materials touting your invention and advertising your website if you have one. How glossy your marketing materials need to be depends on whom you’re selling to. In general, however, the more professional your materials are, the better.
About a week after your materials should have been received, place a follow-up call to be sure the package arrived and to ascertain interest. This is where you need your salesperson’s hat on. If sales is not your forte, you may want to consider engaging a professional salesperson on a commission basis.
Setting Royalty Payments
If the target has any interest at all, the subject of cost will come up. You should probably avoid discussing actual figures in the first phone call and letter. You can simply say that you’re open to discussing whatever would make sense in their case if they think the invention can benefit them. You want them to be sold on your invention’s benefits as much as possible before talking price.
Before discussing price, you should be aware of the various ways a license can specify the compensation paid to the inventor:
- Up-front fees (like a signing bonus)
- One-time fee (royalty paid in full in advance)
- Percentage of sales (percentage royalty)
- Fixed fee per unit sold (unit royalty)
- Minimum fee per quarter or year (minimum royalty)
- Other creative terms suitable to the needs of the parties
Unless you’re intimate with the cost structures and profit margins that drive your target’s industry, it may be difficult for you to determine what is a fair royalty payment structure. You’re best option is to let your attorney help you negotiate.
Negotiating the Agreement
You no doubt had a patent attorney assist you in your patent application. Law firms specializing in patent law are also usually well qualified to negotiate a patent licensing agreement on your behalf and draw up the final papers. The experienced attorney will help negotiate fair terms for many issues you probably would never have thought of, such as:
- Exclusivity
- Sublicensing
- Patent expenses and maintenance fees
- Your consulting services
- Improvements to the invention
- Rights reserved to the inventor
- Cancellation in the event of bankruptcy
- Production schedules and sales targets
- Quantity minimums
- Quality standards
- Accounting methods and audit rights
- Enforcement against 3rd party infringers
- Liability for damages
- Notice requirements
- Termination for breach or non-performance
If for any reason you didn’t have or no longer have a qualified patent attorney, you’ll want to find one. A good attorney will help you maximize the value of your patent and steer you clear of avoidable problems.
Related Articles
- How to Patent Your Invention
- Choosing Between Patent and Trade Secret Protection
- Is My Idea Patentable?
- What You Should Know About Software Patents
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